Author Topic: Playing with momentum  (Read 21239 times)

MustacheAndaHalf

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Re: Playing with momentum
« Reply #50 on: July 27, 2017, 08:25:00 PM »
Have you looked into dual momentum strategy as a way to decrease trading costs?
I need a two part answer for that, but I'll start with trading costs.  To avoid paying any commissions, I selected Vanguard sector ETFs.  The bid-ask spread is often about 1/5,000th of the stock price, so that hasn't proved costly, either.  The SEC also charges a few pennies when securities are sold.  Overall trading costs, using Vanguard sector ETFs in a Vanguard account, have been very low.

I've read the book Dual Momentum, but I have trouble believing any system that neatly avoids all past crashes.  The system predicts crashes and switches into bonds, and then buys back in right as the crash has ended.  From what I saw, it doesn't actually profit off a crash - it just stays out of the market.  Avoiding every crash looks like curve fitting the historical data, so I don't trust going 100% bonds to avoid stock market crashes.

I initially read about momentum in Larry Swedroe's books, where he shows various time frames and countries where it has provided a risk premium.  In this context, momentum means the ability to buy and sell individual stocks - whatever stock has momentum.  Typically academic studies also "short" the stocks with poor momentum, and overall do not reflect the cost of trading.  I've also read a white paper (by MSCI?) collecting various studies in one place.

Now the problem: this fund may or may not track momentum.  I decided to use Vanguard's 11 sector funds as a way of dividing up the market, but still paying $0/trade.  But as a side effect, I can only capture the momentum of an entire sector - hundreds of stocks.  The stocks with good and bad momentum get lumped together, which at a minimum dilutes the effect dramatically.

The ETF sectors are selected based on two (plain) momentum criteria:  one for "price" momentum, or how close a sector has gotten to it's 52-week high.  In the last update, 3 sectors were very close on price momentum - within 1% of their highest point in the past 52 weeks.  The other momentum criteria is "performance", or how well the sector has gained in the past 52 weeks.  The white paper recommends ignoring the past month, so I subtract out the past 4 weeks of performance.  The result is about 11 months of performance used to compare every sector.  In the last update (and many before), Information Technology (VGT) has beaten out other sectors.

Overall the experiment documented in this thread aims to see how "sector momentum" will perform against the S&P 500.  In general the S&P 500 continues to beat it over the ~17 months I've been running this experiment.  So if I had to make a recommendation I would say invest in the S&P 500 instead of sector momentum.

runewell

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Re: Playing with momentum
« Reply #51 on: July 28, 2017, 07:18:07 AM »
In general the S&P 500 continues to beat it over the ~17 months I've been running this experiment.  So if I had to make a recommendation I would say invest in the S&P 500 instead of sector momentum.

In general the S&P has been going up for the last 17 months, and in any case 17 months really isn't enough time to determine anything meaningful.

Retire-Canada

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Re: Playing with momentum
« Reply #52 on: July 28, 2017, 07:39:56 AM »
Miles Dividend MD was using Dual Momentum and posted one update before going radio silent on his blog. It would have been interesting to see the results unfold.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #53 on: July 28, 2017, 05:43:17 PM »
runewell - Agreed, but that's all the data I've got.  If you find 5+ years of sector momentum performance somewhere I'd be interested in that data.

Retire-Canada - Note this thread is not about Dual Momentum, and I'd like to avoid switching to that topic.

Mr Rich Moose - Not aware of a white paper or study using that method, but I'd be open to learning about it.  Do you mean that 3 month performance gets counted 3x (in 3 mo, 6 mo and 12 mo data)?

MustacheAndaHalf

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Re: Playing with momentum
« Reply #54 on: July 29, 2017, 03:13:00 AM »
I'll make another shot at explaining what I meant.  Since the method you describe adds (3 month + 6 month + 12 month), let's say you do this at the end of 2016...
Oct - Dec : get counted in 3 mo, 6 mo, and 12 mo data.
Jul - Sep : get counted in 6 mo and 12 mo data.
Jan - Jun : only get counted in 12 mo data.

Is there a white paper or book describing that method?

MustacheAndaHalf

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Re: Playing with momentum
« Reply #55 on: August 14, 2017, 10:03:46 AM »
Finally the "performance momentum" has shifted - from information technology to the financials sector.  But still, over the past 2.5 weeks the fund managed to lose -1.5% compared to only -0.4% for the S&P 500.  So for this period, the S&P 500 pulls ahead by over 1%.

The fund makes the following changes, in percentage terms:
VCR was 1/6th and is now 1/10th (16.67% to 10%), consumer discretionary
VGT was 2/3rds and is now 1/10th (66.67% to 10%), information technology (finally!)
VAW was 1/6th and is now 0% (16.67% to 0%), raw materials

VIS is a new holding of 10%, industrials
VPU is a new holding of 10%, utilities
VFH is a new holding of 60%, financials

Next purchase is last day of August: Aug 31st.  Hopefully the fund switching most of it's assets from information technology to financials will prove interesting.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #56 on: August 31, 2017, 09:30:14 AM »
Over the past 2.5 weeks, this momentum experiment took another small beating: it lost -1.5% while the S&P 500 gained +1.2%.  Taxes actually benefit this specific scenario, since the IRS shares in losses but also dips into profits.  So after tax that would be roughly -1.1% versus +1.0%.  Still a 2% gap in a few weeks. 

Performance momentum got boring again, switching from VFH (financials) back to VGT (information technology).  A lot of churning on price momentum, reflected below:

VFH now 0%
VCR now 0%
VIS now 0%
VGT from 10% to 62.5%
VPU from 10% to 12.5%
VAW from 0% to 12.5%
VHT from 0% to 12.5%

Next update will be Sept 18th.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #57 on: September 18, 2017, 09:31:31 AM »
The 2.5W fund kept pace with the S&P 500!  Gained about +1.8% vs 1.5% for S&P 500, which shrinks after consideration for taxes: 25% bracket for 2.5W fund (assume short term since selling happens every 2.5 weeks) and 15% bracket for S&P 500 (assuming long-term buy and hold behavior).  After tax, roughly 1.4% vs 1.28% which is noise.  But overall that still leaves the S&P 500 well ahead.

Rather boring update otherwise: the fund adds the "Industrials" sector to the list, changing a 4-way tie into a 5-way tie.  New allocations are: 

VGT at 60%
VHT at 10%
VAW at 10%
VPU at 10%
VIS now 10% (newly added Industrials sector)

Note that when the fund doesn't make many changes, it resembles the original 5W fund that only updated every 5 weeks.  The fund will assess momentum again on Oct 5th, and make any changes based on what happens.

Xlar

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Re: Playing with momentum
« Reply #58 on: September 18, 2017, 09:55:09 AM »
Just wanted to say a big Thank You for keeping up with the updates! I've been enjoying following along :)

MustacheAndaHalf

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Re: Playing with momentum
« Reply #59 on: October 05, 2017, 11:37:21 AM »
Xlar - Thanks for the vote of support.  I think I'm reaching 20 months in a week or so.

To summarize my understanding, the S&P 500 is a benchmark.  Anything has to prove itself against that benchmark, and hopefully this experiment gathers some evidence (for or against) about how sector ETFs and momentum compare against the S&P 500 benchmark.

Although the 2.5W fund did well (+1.3%), the S&P 500 did slightly better (+1.4%).  Catching a benchmark is hard if a good month results in a tie.  Performance momentum switched half the fund from VGT (info tech) to VFH (financials).  The rest of the fund went from a 5-way tie to a 6-way tie.  VPU not only performed poorly, it lacked momentum and dropped from the fund list (for now).  Here's the changes:

VGT (info tech) was 60% now 8.33%
VFH (financials) was 0% now 58.33%

VHT was 10% now 8.33%
VIS was 10% now 8.33%
VAW was 10% now 8.33%

VPU was 10% now 0%
VCR was 0% now 8.33%

So the fund is mostly financials (VFH), and a tied group of VGT/VHT/VIS/VAW/VCR.  At some point I plan to calculate how far 2.5W fund is behind it's S&P 500 benchmark (at least 5%, maybe 10%?).  Early this year it was behind by at least 5%, and has rarely had a month beating the S&P 500, so I typically don't bother with the exact calculation.  In theory it could be reconstructed from the data in this thread and a lot of patience.

Next update in about 2.5 weeks (this the 2.5W fund naming), on October 23rd.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #60 on: October 23, 2017, 09:24:24 AM »
spoiler/tldr - Both 2.5W fund and S&P 500 gained about +1% since 10/5/2017. 

A 6-way tie wasn't enough - now it's a 7-way tie over price momentum.  Too many funds are at their high point relative to the past 52 weeks, causing a lot of ties.  Sadly, it's easier to describe what the fund does NOT hold than what it does.

The fund does not hold VDC (consumer staples), VDE (energy), VNQ (real estate) and VOX (telecom).  Which leaves the fund holding the following...

57.14% financial (VFH)
7.14% consumer discretionary (VCR)
7.14% health care (VHT)
7.14% industrial (VIS)
7.14% information technology (VGT)
7.14% raw materials (VAW)
7.14% utilities (VPU)

Note the actual share prices and number of integral shares don't actually equal 7.14% each, but it's easier to represent them like this.  It's interesting that despite the fund's concentration in financials (and before that info tech), it didn't pull ahead of the S&P 500.  And overall in the 20 months of the fund (and this thread), it has trailed the S&P 500 by roughly 5-10% in total.  When a dramatic change occurs, I plan to calculate the exact amount. 

Another 2.5 weeks lands on Nov 9th for the next purchase.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #61 on: October 23, 2017, 09:36:24 AM »
One correction (I don't want to edit my prior posts, so they remain a record of what happened at that time): I started this thread on May 18, 2016 rather than mid Feb.  The momentum experiment is 20 months old, but this thread is 17 months old.

I'd also like to summarize the current setup and mention changes from the original.

Originally the fund was in a taxable account with a "budget" for it's gains.  Now the fund is in a retirement account with no concern for gains.  Despite the actual location of the funds, a taxable gain of 25% is used to project how the fund would perform after taxes.  The benchmark remains the S&P 500, which is presumably bought and held - so it's tax bracket is 15%.

The fund uses price and performance momentum, per a white paper by MSCI (that now requires name & email to download).  Price momentum is current price divided by the highest price in the past 52 weeks.  Everything at a 52 week high has 1.00 price momentum.  Performance momentum is the gains over the past year divided by the asset's starting point.  Because "reversion to the mean" is significant to momentum, the past 4 weeks are subtracted out and ignored when calculating momentum - see the white paper for a full description of these algorithms, data, and reasoning. 

I picked Vanguard sector funds owing to their $0/trade and low expense ratios.  They also cover the entire market, split into 11 funds.  It would be better to rank the momentum of the entire market and keep only the highest momentum stocks - but that's too exhausting and costly.  So this fund uses Vanguard sector funds to track momentum.

anisotropy

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Re: Playing with momentum
« Reply #62 on: October 24, 2017, 03:39:25 PM »
hi, cool experiment. Perhaps I missed it, but what are the rules for rotating in and out of a sector? I couldn't find it other than mentions of price momentum and performance momentum, do you take the average of the two?

and when you say "starting point", what do you mean exactly? price of jan 1?

Sorry if I missed something, Thanks.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #63 on: October 24, 2017, 07:33:45 PM »
Sure, I'll explain.  The fund uses 52 weeks of data, so the "starting point" is the data from 52 weeks ago: the performance since that time, or the highest price since that time.  Half the fund is purchased using price momentum, and half gets allocated based on performance momentum.

First performance momentum.  To avoid "reversion to the mean" effects, the past 4 weeks are subtracted from the 52 week performance.  As of right now, "financials" (VFH) has a 52-week performance of +35.94% and a 4-week performance of +4.46%.  35.94 - 4.46 = +31.48%.  The next closest sector is information technology (VGT) with 32.76 - 4.40 = +28.36%.  That's too far away for a tie, so "financials" is held to represent "performance momentum".  As soon as another sector beats financials, the entire allocation gets switched to the new sector (unless they are so close there is a tie).

Price momentum can't be subtracted easily, so I compare the current price to the highest price in the past 52 weeks.  For raw materials (VAW), that's $133.56/share divided by a highest price of $133.76, or 99.85% of it's 52-week high.  There are several other funds over 99% of their 52-week high price, so a lot of ties with the #1 price momentum sector.  All of those get purchased.  A few smaller sectors only need 98% of their high to form part of a tie, which is why utilities (VPU) is also part of this tie between 7 sectors.

Every update, the fund sells everything that no longer matches it's momentum criteria, and buys everything that meets the criteria.  The idea of momentum is that you hold an asset while it makes gains faster than other assets, and sell at a certain interval when something else is doing better.  I'm not especially convinced that sector momentum is a useful strategy, but I'm running this experiment (for 1.7 years) to see where it goes.  So far, it's trailed the S&P 500.

anisotropy

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Re: Playing with momentum
« Reply #64 on: October 25, 2017, 01:09:54 PM »
hmmm I see, thanks.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #65 on: November 09, 2017, 10:02:40 AM »
Another win for the S&P 500, which gained slightly (+0.12%) while the 2.5W fund lost ground (-1.5%).  Momentum does badly in volatile times because the "signal" of rising prices is actually just rapid ups and downs of the market.

For while financials and information technology have taken the #1 spot on performance momentum - and now they're tied.  So the "performance momentum" half of the fund's assets get split between VFH and VGT.

A new entry!  For the first time, the fund bought VNQ ("real estate").  Five sectors are close enough to their 52 week peek price to form a 5-way tie: VNQ, VPU, VCR, VAW, and VGT.  Because momentum can change quickly, if I had delayed my purchases one hour this would have only been a 3-way tie.

So the new fund allocation is as follows:
35% VGT (info tech), for both price and performance momentum
25% VFH (financials), for performance
10% VPU (utilities), for price
10% VCR (consumer staples), for price
10% VAW (raw materials), for price
10% VNQ (real estate), new entry, for price

If I had to make an educated guess, I think the S&P 500 is ahead by roughly +10% compared to the 2.5W fund.  Some day I plan to make some cross-spreadsheet calculations that will make the full calculation easier.

Next purchase date is November 27.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #66 on: November 27, 2017, 09:02:19 AM »
The 2.5W fund gained 1.7% versus 0.6% for the S&P 500.  The lead shrinks after taxes (+1.3% vs +0.5%), but it's still a rare (random?) win for the 2.5W fund.

I checked momentum 3 times today, and in 2 of 3 times VPU was part of a 5-way tie for price momentum.  One time, it dipped low and made for a 4-way tie.  So overall I kept it in (2 out of 3), but if my timing was different, it would be out.

I track all changes in value on a spreadsheet that I also use to calculate the profit of the fund.  It would be better to have a separate place where the value of the stocks can be added to the cash holdings.  Further, I'd like to roll up the old spreadsheet data into this, so I don't have to go back through time by hand to figure it out.  And finally, the new spreadsheet should list the S&P 500 gains.  Essentially I should automate the profit of both the fund and it's benchmark, going from the start of the fund to the present day.

A relatively boring update, otherwise: only performance momentum changed.  The fund's 25% holding of VFH (financials) was sold and used to buy VGT (info tech).  The fund now consists of:

60% VGT (info tech, was 35% + 25% VFH sold)
10% VCR (consumer discretionary)
10% VAW
10% VNQ
10% VPU

Both VGT and VCR made decent gains and are the main reason the 2.5W outpaced it's benchmark for 2.5 weeks.

Next update is on Dec 14th.  (The update after that will be delayed by the New Year's Day closure of the NYSE, and will occur on Jan 2, 2018)

MustacheAndaHalf

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Re: Playing with momentum
« Reply #67 on: December 15, 2017, 08:19:03 AM »
Ow, ow, ow.  It's a decent summary of a benchmark (+2.6%) beating the 2.5W fund (-1.8%) by +4.4%.  Taxes bring these two slightly closer together: the 2.6% gain is taxed at 15%, making the S&P 500 gain only +2.2% after taxes.  And capital losses are shared by the IRS, so that turns the 2.5W fund's performance into a -1.4% after taxes.  Since Nov 27, the 2.5W fund lost against it's benchmark by -3.6% after taxes.

My update is one day late, so I used data from yesterday's market close to make the fund purchases.  The fund sells off utilities and 1/6th of information technology in order to make room for health care and industrials.

The fund now holds:
50% VGT (info tech) (was 60%)
0% VPU (utilities) (was 10%)
10% VCR (consumer discretionary)
10% VNQ (real estate)
10% VAW (raw materials)
10% VIS (industrials) (just added, was 0%)
10% VHT (health care) (just added, was 0%)

I also found overall performance numbers lurking in a spreadsheet I already set up: for the benchmark, from Feb 17 2016 until today the S&P 500 gained +37%.  Over the same time period, the 2.5W fund gained +18%.  With tax rates of 15% (long-term for S&P 500) and 25% (short-term for 2.5W fund) that comes to +31% after tax (S&P 500) and +13% for the 2.5W fund.  Hopefully it's easy enough to keep this running that I reach the 2 year mark with this experiment.

The next update will also be one day late, but by necessity: the stock market will be closed on New Year's day.  So next update on Jan 2nd.

anisotropy

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Re: Playing with momentum
« Reply #68 on: December 19, 2017, 02:16:39 PM »
Hi MAH,

Been digging around in the momentum studies since I found your thread, as it is interesting to me.

I don't mean to sidetrack your thread but I came across an AQR paper: a century of evidence on trend-following investing. Versions of 2014 and 2017 exist, regardless, they tell the same tale.

It is curious to me that per AQR paper trend-following (momentum) is the unequivocal winner in all situations (including out of sample tests in 2017 ver.), yet it appears less so in your experiment. I am wondering that if you have any comments, perhaps regarding the length of time-series or how the momentums were quantified in each experiment that could result in the discrepancies. You can PM me if you feel it is more suitable. Thanks.

ps. I am not affiliated with the AQR paper in any way or form.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #69 on: December 30, 2017, 11:26:42 PM »
I read some of the AQR paper just now.  The 2.5W fund experiment goes 100% equity into some number of U.S. market sectors.  The AQR paper includes commodities, international markets and probably other investments.  It also uses volatility weighing to manage risk, and will short an entire market if that market has a negative trend.  Lots of differences there, some of them interesting. 

Going back to the setup of this 2.5W fund experiment, I didn't want to pay fees and wanted it simple.  Using Vanguard sector funds accomplished both goals: the market is split into 11 (non-equal) sectors, each of which costs $0 to buy or sell.  But a mutual fund tracking momentum would not be subject to these restrictions: both the complexity and fees can be higher, in order to capture more of the market's momentum. 

Adding complexity and paying fees might capture more momentum.  Buying individual stocks involves paying fees.  I suspect "motif investing" would work best, since that allows up to 30 stocks to be purchased for a single $10 fee.  On the complexity side, this would mean tracking the performance of hundreds (thousands?) of stocks and buying the "momentum winners" and selling any that fall out of favor. 

Overall, I think the 2.5W fund experiment involves baskets of stocks with mixed momentum (U.S. stock sectors), and so can't capture momentum as directly as other methods.  It also does not short any stocks, so it loses out on that traditional momentum measure as well.

Next update in a couple days...

MustacheAndaHalf

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Re: Playing with momentum
« Reply #70 on: January 02, 2018, 08:58:54 AM »
Purchases and sales for the fund are normally recorded in two separate places, but the last purchase was only recorded in only one place.  The cash position of the fund is nearly always below 1%, but the exact amount will require going over purchase records to determine (the fund is co-mingled with other assets, and tracked separately).  To avoid problems, I made overly conservative purchases and left the fund in a roughly 1.5% cash position. 

The S&P 500 lost a little bit since Dec 18, while the 2.5W fund had a gain.  The accurate calculation of that gain awaits both updating the last set of purchases, and redoing the spreadsheets to include the cash position.  Overall the fund probably had an insignificant gain and still trails the S&P 500 index.

The only change was to sell off the real estate sector (VNQ) which lacks enough momentum.  The 5-way tie in price momentum becomes a 4-way tie.  Information Technology remains the leader of performance momentum, and is retained. 

Here's the fund's composition after today's purchases:
50% VGT (information technology)
12.5% VAW (raw materials)
12.5% VCR (consumer discretionary)
12.5% VIS (industrials)
12.5% VHT (health care)
00.0% VNQ (sold off real estate, which lacks momentum)

Hopefully I will get the records cleared up before the next purchase on Jan 18th.  With some luck, I might even get a profit/gain calculation that includes the fund's cash position.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #71 on: January 04, 2018, 09:55:52 AM »
Spreadsheet fixed, and now I include the cash position of the fund.  In the 22.5 months since this experiment started, the S&P 500 has gained +40% while this fund gained +20%.  About the same after taxes: +36% (long-term tax rate of 15%) S&P 500, and +15% for the fund (short-term tax rate of 25%).  A successful fund doesn't need to change much, but this fund has fallen 20% behind it's benchmark.

My mindset is so focused on indexing, that I added a restriction to this fund that doesn't have any inherent purpose.  I selected 11 Vanguard sector ETFs that comprise the US stock market.  But I don't need to cover exactly the stock market to track momentum - I can use any fund that exhibits greater performance than other funds.

Most of my updates involve changes to "price momentum", which compares the current price of an asset against it's highest price in the past 52 weeks.  Every asset at it's 52-week highest price is a tie, so I handle ties by buying them all.  But if I drop price momentum, and drop ties, the fund will be far easier to manage.

This experiment hits it's 2 year anniversary next month.  I will keep the fund's existing policies for the purchases on Jan 18 and Feb 5.  But I will make changes starting with the Feb 22 purchase date.

Starting on Feb 22 2018, the fund will still purchase "Vanguard ETFs", but no longer be limited to sector ETFs.  The fund will track all Vanguard stock ETFs, and purchase whichever one exhibits the best performance (52 weeks minus last 4 weeks).  This means the fund could buy US utilities one week and emerging markets the next week.  It will not buy bond funds, only stock funds, and will only buy Vanguard ETFs.

Currently half the fund's assets are invested according to "price momentum" (how close the asset is to a new 52-week high water mark).  Starting on Feb 22, 2018 the fund will sell off these assets and drop "price momentum".  100% of assets will be purchased based on "performance momentum", and with no ties.  The fund may perform worse without "price momentum", but it will be far easier to manage the fund.

These changes probably invalidate the fund's benchmark.  A fund that can invest in emerging markets does not have the same level of risk as the largest 500 publicly traded companies in the U.S.  I don't like changing benchmarks, and I can't know in advance if the fund will even buy international stock.  So while it's imperfect for the fund's new risk profile, I plan to keep the S&P 500 index as the benchmark until that no longer seems appropriate.

Overall, expect normal updates on Jan 18 and Feb 5, and then a big set of changes on the Feb 22 update.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #72 on: January 18, 2018, 09:07:53 AM »
In the past 2.5 weeks, the 2.5 fund gained about +6% while the S&P 500 gained +4% since the last update.  Doing +2% better than a benchmark is great, but it needs to be put in context of the overall experiment (now ~23 months old):  overall +26% for 2.5W fund, +44% for S&P 500.

For those wondering about stability, I suspect the policy changes I'm making in February (per prior post) will make the fund far more stable.  Half of the fund tracks performance momentum, with no changes this update.

The other half of the fund tracks how close each sector is to it's 52 week high.  That half of the fund went from a 4-way tie to a 7-way tie (out of 11 sectors).  The constant changes in this half of the fund will go away on Feb 22 when the fund drops this momentum measure.

The funds holdings are now:
57.14% VGT (was 50%, added to existing holding), information technology
07.14% VCR (was 12.5%), consumer discretionary
07.14% VAW (was 12.5%), raw materials
07.14% VHT (was 12.5%), health care
07.14% VIS (was 12.5%), industrials
07.15% VDC (new holding), consumer staples
07.15% VFH (new holding), financials

Changing the 4-way tie to a 7-way tie required selling from 4 funds, and buying from 3 other funds.  And trying to round up or down each fractional share to minimize the amount of idle cash.  Apologies for not listing exact percentages above: once ties go away, the fund will be 100% in one fund at a time.

Note of all Vanguard ETFs, VGT (info tech) has the most price momentum.  If the fund were using the new policies, it would be 100% in VGT.  Those changes go into effect on the Feb 22nd update.

Next update on Feb 5th.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #73 on: February 05, 2018, 09:40:03 AM »
The momentum experiment is only using "sector momentum" one last time, today.  On the next update, the fund will be allowed to follow momentum in any Vanguard ETF.  And it will drop the use of "52 week high" momentum, which triggers when a sector/ETF gets close to it's highest price from the past 52 weeks. 

The fund beat it's benchmark again by losing less.  The S&P 500 dropped to a total gain of +41.9% while the momentum experiment's total gain is +24.3%.  While the last 2 updates have chipped away at the benchmark's prior lead, I doubt most people would volunteer for losing -6.4% a year for two years.  That's the fund's performance as measured against its benchmark over the experiment so far. 

The fund dropped 3 ETFs as health care (VHT), raw materials (VAW) and consumer staples (VDC) all lost momentum.  That results in the following allocation:

62.5% VGT, information technology
12.5% VCR, consumer discretionary
12.5% VFH, financials
12.5% VIS, industrials

Next month, using only performance momentum without ties will result in the fund holding only one ETF.  If the fund were altered today to have those policies, it would be 100% in VGT, which is beating out both emerging markets and mega-cap stocks for the top performance spot.  Those changes happen on the next update, scheduled for Feb 22.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #74 on: February 22, 2018, 08:35:28 AM »
Well, that was strange.  On Jan 4 2018 I announced policy changes for this fund, which includes dropping "price momentum" and using only "performance momentum".  And for the past 12+ months "price momentum" always had ties... until today, the very day I announced would end ties.  So that's a bit strange, but at least it creates a neat transition from the old policy to the new one.

Over the 2 years of the experiment so far, here's how the fund has performed:
2.5W (formerly 5W) momentum experiment: +24.20% before tax, +18.15% after tax
benchmark S&P 500 index: +40.15% before tax, +34.13% after tax
(note momentum fund sells often so uses a short-term 25% tax rate.  The benchmark is assumed to be a "buy and hold" strategy that uses long-term capital gains of 15%)
Roughly speaking, it's like the fund earned +9%/year while the S&P 500 earned +18%/year.

The fund no longer allows ties, and solely uses "performance momentum".  Because of spreadsheet limitations, I can only track ETFs with a corresponding mutual fund.  So Vanguard's suite of new "factor ETFs" will not be used by this experiment.  So this momentum experiment will not be purchasing Vanguard's new momentum ETF.

Vanguard has 39 ETFs which also have a mutual fund.  I'm tracking all of those on a spreadsheet for momentum.  I take their 52 week performance, subtract their most recent 4 week performance, and the result is the momentum of that ETF.  Here are the top 3 Vanguard ETFs ranked by momentum right now:

Information Technology (VGT) +32.76%
FTSE Emerging Markets (VWO) +27.20%
FTSE Europe (VGK) +27.15%

Since VGT has the most momentum, 100% of the fund's assets go into that fund:
100% Information Technology (VGT)

The next update is scheduled for March 12, but I'll check back to answer questions.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #75 on: March 12, 2018, 09:46:24 AM »
No change: Information Technology (VGT) has the highest 52 week (minus 4 week) performance of Vanguard's ETFs.  The fund remains 100% invested in VGT.

In a refreshing change, the fund gained +5.84% since 2/22 versus it's benchmark +2.53%.  That +3.3% gain against it's benchmark still leaves it well behind overall.

Next update is March 29th.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #76 on: March 29, 2018, 08:48:10 AM »
Unchanged.  VGT, Vanguard Information Technology remains the 100% holding of the 2.5W fund experiment.  Tracking the overall totals since the experiment began (Feb 2016):

S&P 500 index, +34.75% (pre-tax)... +29.5% after paying 15% LTCG tax
2.5W fund, +20.57% (pre-tax)... +15.4% after paying 25% short-term capital gains tax

Next update 4/16

MustacheAndaHalf

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Re: Playing with momentum
« Reply #77 on: April 16, 2018, 08:24:32 AM »
Here's the top 3 Vanguard ETFs by performance (52 week - 4 week performance):
(1) VGT , 12 mo @ 31.75% , 1 mo @ -5.01% , 31.75 - -5.01 = 36.76 momentum
(2) VFH , 12 mo @ 20.62% , 1 mo @ -5.63% , 20.62 - -5.64 = 26.25 momentum
(3) MGK , 12 mo @ 20.82%, 1 mo @ -4.92%, 20.82 - -4.92 = 25.74 momentum

Since VGT is ahead by over +10 on momentum, the 2.5W fund experiment remains 100% invested in VGT (Technology).

It's really dramatic the change to the fund since I dropped the "52 week price" criteria for momentum.  Any sector can approach it's own 52 week high point, and tie other sectors.  But only one fund has the best performance, and if the gap is wide enough other ETFs find it difficult to catch up.  At some point this "trend" or "momentum" will reverse, and a new ETF will be picked by the algorithm.

The fund currently invests everything in whichever Vanguard ETF has the best performance in the past year, ignoring the past month.  Overall 2.5W fund profit since Feb 2016 is +24% vs S&P 500 (benchmark) profit of +37% (both before tax).

On May 3rd the fund will check to see if it remains 100% in VGT or picks another ETF.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #78 on: May 03, 2018, 07:52:23 AM »
Unchanged.  The 2.5W momentum experiment remains 100% in VGT.

According to morningstar data, VGT grew +3.7% in the past month while VOO (S&P 500 index, the benchmark) gained +2.2%.

Here's the current momentum calculations for the top 3 Vanguard ETFs:
VGT, Vanguard Information Technology, 24 - 0 = 24 momentum
VWO, Vanguard Emerging Markets, 17 - (-2) = 19 momentum
VPL, Vanguard Pacific, 18 - 0 = 18 momentum

Vanguard announced that VGT (and other funds) have been going through a transition to a new index.  As part of that transition, Facebook and Google will be removed from VGT and added to another sector fund.  So while this experiment has held VGT, VGT itself has been changing contents.

Next update is May 21.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #79 on: May 21, 2018, 07:59:54 PM »
Still 100% invested in VGT.

As the last few months demonstrate, picking the ETF by performance is much more stable than picking the ETFs that are closest to their highest price.  Information Technology still leads, with "finance" and "small cap growth" in the 2nd and 3rd place spots.

Next update on June 7.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #80 on: June 07, 2018, 08:27:58 AM »
Here's the 52 week performance of a couple interesting ETFs:

+30.8% Information Technology ETF (VGT)
+21.8% Finaicials ETF (VFH, the 2nd highest return of Vanguard ETFs I track)
+16.3% S&P 500 Index ETF (VOO, the benchmark of this experiment)

It took me two years to dump other criteria and solely focus on 52 week performance (minus 4 week performance).  If I'd done that sooner, the 2.5W experiment might be ahead.

Instead, the overall raw performance for the past 2.3 years:
S&P 500 benchmark +43.2%
2.5W fund experiment +34.2%

So the raw performance has pulled back within 7% of it's benchmark.  The other new twist is the fund doesn't make changes often.  The fund would have held VGT for over 12 months, at which point tax on the sale uses long-term capital gains rates.  So the changes made in Feb 2018 not only make the fund's raw performance better, but probably improves the after-tax performance as well.

Or as Ice Cube might say: "Dropped four funds and now I'm making all the dough"

MustacheAndaHalf

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Re: Playing with momentum
« Reply #81 on: June 07, 2018, 10:11:47 AM »
I forgot to state it explicitly:
2.5W experiment remains 100% in VGT, Information Technology.

Next update on June 25th.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #82 on: June 25, 2018, 08:03:56 AM »
The fund remains 100% in Vanguard Information Technology (VGT).

For the past 13 weeks (1/4th year), VGT is +10.2% and it's benchmark S&P 500 is +7.0%.  Overall the fund's performance since Feb 2016 has been -11% behind it's benchmark.  The combination of the markets, and the policy changes in Feb 2018 have improved performance.

VGT is currently in transition.  Vanguard is moving companies like Apple out of the index, and reclassifying those companies as consumer companies.  The ideal approach would be to split out the individual stocks and measure their aggregate performance as two separate funds, but that's far too much effort for this.  So I plan to just keep using the performance data of the existing Vanguard ETFs, and ignore the underlying stock changes.

Here are the top 3 ETFs at Vanguard, by momentum score.  Momentum score is 52 week performance minus 4 week performance.

1) VGT @ +34.62% - (4.78) = +29.84  (info tech)
2) VDE @ +18.06% - (-3.68) = +21.74  (energy)
3) VBK @ +25.71% - (4.70) = +21.01  (small cap growth)

SansSkill

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Re: Playing with momentum
« Reply #83 on: June 26, 2018, 03:28:04 PM »
Been following this thread for a while, especially considering I'm thinking of running some of my own experiments.

I have one question though: why two and a half weeks?
Why not 2 (get an whole amount of periods in a year) or 4 (13 periods in a year) or monthly?

MustacheAndaHalf

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Re: Playing with momentum
« Reply #84 on: June 27, 2018, 06:39:34 AM »
Originally, it was the "5W fund" experiment, which stood for 5 weeks.

I expected high turnover, and I wanted to avoid wash sales (selling at a loss within 30 days of buying).  So that pushed the time out past 31 days.  I originally wanted the fund to make purchases on the same day of the week, so I picked 35 days (5 weeks).

I moved the fund from taxable to a retirement account, and no longer needed to worry about wash sales (no taxes involved).  I also wanted to see if checking for a change in momentum more often would help the fund better track momentum.  So I cut the time in half, and the fund became the "2.5W fund" experiment.

Probably less useful than you hoped for your own experiment.  Do you worry that certain companies announce quarterly earnings at the same time every quarter, which might bias which companies look good?  Earnings tend to move company stock prices, so you might see the same company's stock moving more than average if you check the same time every quarter.

SansSkill

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Re: Playing with momentum
« Reply #85 on: June 27, 2018, 08:54:34 AM »
I figured it might be a US thing.
I live in the Netherlands, we have only a wealth and dividend tax, so trading frequency is not a factor for tax advantages.

I'm still working out the details, I have accounts with two, soon three brokers, each with different advantages in fees and available products, so I'm still looking to see what kind of momentum portfolio I can make with any of the three brokers and then decide on the implementation details like how often to rebalance. I was considering a non nice number to rotate trading days / cycle within earnings quarter. On the other hand I feel like I might be comparing apples to peaches if I keep changing the weekday and time relative to earnings, so there might be some drag/inaccuracy from that as well.

One thing I'm thinking of is what to do if the highest momentum score is negative, logically speaking the conclusion should be to pull out of the market and wait for a non negative momentum?

MustacheAndaHalf

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Re: Playing with momentum
« Reply #86 on: June 28, 2018, 10:21:58 AM »
I originally learned a lot from reading an MSCI white paper on momentum:
https://www.msci.com/www/research-paper/introducing-momentum-a/0535854138

There's also academic research on stock markets that explores how momentum explains some of the total return of the stock market.  It's a "factor" in factor investing.  So you can read books or white papers and probably learn enough there.

From what I've read, you can pick "3 month momentum", which is just the highest performing asset according to 3 month performance.  There might even be a "5 year momentum" effect I saw in one paper, but I settled on 12 month momentum.  In this "2.5W fund" experiment, momentum is 52 week performance minus 4 week performance.

I originally made the mistake of trying to pick the market sector with the best momentum.  I thought in terms of indexing, and slicing up the market.  But that's just a limitation of my thinking.  This year I switched to "any ETF at Vanguard", which means I can pick "small cap growth" if that's the best performer.  So far, Information Technology has so much momentum that nothing has overtaken it, but I recommend not limiting your thinking to specific market sectors like I did initially.

Supposedly momentum can be negative as well.  If you pick the worst performer, it's more likely to keep going down.  So if you pick a fund or stock with negative momentum, there may be a tendency to lose money.  Check books and white papers for how you want to handle that.  More likely, it won't come up that often.  You could also try "double momentum" which switches to bonds if bonds have better momentum than stocks.  But delving into that is a topic for another thread, so I'll just leave that as a possible book for you to read.

Here's roughly how this 2.5W fund works:
spreadsheet shows performance for 52 weeks minus 4 weeks for every Vanguard ETF.
I use a sorting function to order the list by (52 week - 4 week performance), so it's easy to pick the best momentum ETF at Vanguard.
I use Vanguard since Vanguard ETFs cost $0 to trade at Vanguard.  If your situation with fees in the Netherlands is more complex, you might need another solution.

Overall, the S&P 500 still beats this momentum experiment by over 10% in 2.3 years.  So if you try something similar, use money you don't need to depend on.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #87 on: July 12, 2018, 09:53:22 AM »
The 2.5W fund remains invested in VGT.

None of Vanguard's other ETFs have come close in terms of performance momentum.  Remaining invested in VGT has regained some of the ground lost to the S&P 500 benchmark, but the 2.5W fund remains -9.2% behind (since Feb 2016).

Vanguard is providing an alert concerning VGT:
"NOTE: In anticipation of upcoming changes that MSCI is making to select sector benchmarks, this fund will temporarily track a transition benchmark."

I wanted to see what I could learn with a few clicks, and wound up downloading MSCI's spreadsheet of which companies will move between sectors.  Google and Facebook are in the list, and migrate from information technology (that's VGT) into communications services (at Vanguard, VOX).

VGT's Google holding ($964 million) is almost the same size as the entire VOX ETF ($988 million).  Although GOOG is quickly becoming VOX's largest holding, it's not enough.  So the transition index allows Vanguard to sell GOOG and FB shares - possibly to other Vanguard funds - before September arrives.

The question for the 2.5W fund is this: how does dropping GOOG and FB from VGT impact it's momentum?  Here's 52 week performance minus 1 month performance:
VGT: +31.73% - (-0.28%) = 32.01 mtm
FB: +30.44% - 5.74% = 24.7 mtm
GOOG: +24.06% - 2.12% = 21.94 mtm

It looks like VGT has higher momentum than FB and GOOG.  So when FB and GOOG migrate out of VGT, I'm estimating that VGT gains momentum.  VGT is not relying on GOOG and FB for it's performance, so that lays one concern to rest.

Next update July 30th.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #88 on: July 30, 2018, 11:08:51 AM »
Despite today's -2.3% losses (so far) for VGT, the 2.5W momentum fund remains 100% in VGT.

The white paper I read long ago on momentum probably mentioned "reversion to the mean", or the tendency for stock movements to reverse.  It's not predictable, so the momentum algorithm I use just waits it out.  The prior 4 weeks are ignored, and the remaining performance over the past 52 weeks gets used.  So for the next 4 weeks, today's price change won't be reflected in the momentum calculations for this 2.5W fund experiment.

Here's the top few Vanguard ETFs in terms of 12 month momentum (as of today):
#1 VGT, information technology
#2 VDE, energy sector
#3 VBK, small-cap growth
#4 VCR, consumer discretionary
#5 MGK, mega-cap growth

VGT still holds quite a lead, at +23.89 momentum versus others all in the +16 to +19 range.  So today's performance, by itself, is not enough to shift momentum to another Vanguard ETF.

We'll see how volatile the market can be over the next 2.5 weeks....
Next update on Thursday, Aug 16.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #89 on: August 16, 2018, 07:26:45 AM »
VGT, at a new high, remains 100% of the fund's investment.

VGT recovered from the last drop and is now back to -9% behind the S&P 500 (overall, since Feb 2016).  Some of the tech stocks have probably migrated out of VGT by now, although that won't be clear until Vanguard publishes an update.

An interesting observation: When I started this experiment, I decided on funds that cost $0/trade at Vanguard.  At the time, that meant only buying Vanguard funds.  But Vanguard plans to offer ~1800 ETFs for $0/trade some time in August 2018.  So in the near future, the fund could buy from a much larger selection of ETFs for the same $0/trade.

A technical admission: the fund actually tracks 39 Vanguard mutual funds that also have an ETF share class.  Google Sheets cannot track ETFs directly, only mutual funds.  So I've used mutual funds as proxies for the ETF with the same name and assets.  But that won't be possible for the ~1800 non-Vanguard ETFs.

I don't plan to change anything for the September 3rd update, but I might make changes 1-2 updates after that.  Since I don't have to worry about people "front running" this fund, I'll reveal my probable source of information here:
http://etfdb.com/compare/highest-52-week-returns/no-leveraged/

That list shows the top 100 ETFs in etfdb's database ranked by 52-week performance.  I will need a way to subtract their 4 week performance, but I'll probably do that by hand initially.  So maybe late September or mid-October I'll start relying on that page to select ETFs.

In the meantime, the fund remains 100% invested in information technology (VGT).
Next update on September 3rd.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #90 on: August 16, 2018, 07:31:25 AM »
Two notes: "front running" in this case would mean someone sees my update, looks at the list I published, and then buys the top ETF listed there.  They then wait for me to buy it, and sell on the "bump" I give the ETF due to a large purchase.  But this fund is too small to make any market impact.

And second, I already own PSCH outside of this fund.  So if you decide to buy PSCH because it's at the top of that list, you could be indirectly benefiting another holding of mine.  If you watch financial news shows, you'll see people admitting if they own shares of whatever stock they discuss.  Also, you can look at etfdb.com's other lists, rather than the one I mentioned above... they have 13 week performance, 5 year performance, and even leveraged ETFs.
http://etfdb.com/compare/

hodedofome

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Re: Playing with momentum
« Reply #91 on: August 16, 2018, 11:45:15 AM »
VGT, at a new high, remains 100% of the fund's investment.

VGT recovered from the last drop and is now back to -9% behind the S&P 500 (overall, since Feb 2016).  Some of the tech stocks have probably migrated out of VGT by now, although that won't be clear until Vanguard publishes an update.

An interesting observation: When I started this experiment, I decided on funds that cost $0/trade at Vanguard.  At the time, that meant only buying Vanguard funds.  But Vanguard plans to offer ~1800 ETFs for $0/trade some time in August 2018.  So in the near future, the fund could buy from a much larger selection of ETFs for the same $0/trade.

A technical admission: the fund actually tracks 39 Vanguard mutual funds that also have an ETF share class.  Google Sheets cannot track ETFs directly, only mutual funds.  So I've used mutual funds as proxies for the ETF with the same name and assets.  But that won't be possible for the ~1800 non-Vanguard ETFs.

I don't plan to change anything for the September 3rd update, but I might make changes 1-2 updates after that.  Since I don't have to worry about people "front running" this fund, I'll reveal my probable source of information here:
http://etfdb.com/compare/highest-52-week-returns/no-leveraged/

That list shows the top 100 ETFs in etfdb's database ranked by 52-week performance.  I will need a way to subtract their 4 week performance, but I'll probably do that by hand initially.  So maybe late September or mid-October I'll start relying on that page to select ETFs.

In the meantime, the fund remains 100% invested in information technology (VGT).
Next update on September 3rd.

I have plenty of Google Sheets tracking ETFs in them.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #92 on: August 17, 2018, 09:30:19 AM »
You misinterpreted my usage to match yours.  If you only track today's price, you can use GOOGLEFINANCE() to lookup 1 day of data.  But that same call fails to work for 52-week and 4-week returns.  Try inserting the following into Google Sheets:

=GOOGLEFINANCE("VGT","return52")

The result will be "#N/A", with the Error explained as "Function GOOGLEFINANCE parameter 2 value is invalid for the symbol specified."  So Google Sheets cannot provide the 52-week and 4-week tracking that I require.  Google Sheets only supports "returns52" and "returns4" if the symbol is a mutual fund.


MustacheAndaHalf

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Re: Playing with momentum
« Reply #93 on: August 24, 2018, 09:19:19 PM »
The earlier mentioned changes are being moved forward, to September 3rd.  On that date I'll use a new input feed for buying ETFs based on momentum, using the same momentum criteria as before.

I've verified that Vanguard now charges $0 for many non-Vanguard ETFs.  That means the 2.5W fund experiment doesn't need to stick to Vanguard ETFs.

I've double checked etfdb.com's top 52 week performers against mornignstar.com data, and they are a close match.  So it looks like I can rely on etfdb.com rankings of ETFs.

So here's my new approach:
1. Every 2.5 weeks, visit the etfdb page for top 52 week returns (ignoring leveraged ETFs):
http://etfdb.com/compare/highest-52-week-returns/no-leveraged/
2. Check momentum of at least the top 5 ETFs.  Pick the ETF with the highest 52-week performance minus 4-week performance, and switch the fund's assets to that ETF.
3. If Vanguard charges a fee for that ETF, go down the list until a $0 trade can be found.

As of right now, PSCH has a +10 momentum lead over the next ETF in that list.  (I already own PSCH outside this experiment, as well).  So if nothing changes in the next ~10 days, the fund would purchase PSCH on September 3rd.

Selecting the highest momentum from thousands of ETFs should give the 2.5W fund experiment greater momentum exposure than selecting from a few dozen Vanguard ETFs.  Next update, using this new approach, on September 3rd.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #94 on: September 04, 2018, 09:14:14 AM »
The stock market was closed 9/3 for Labor Day, so my 2.5W fund purchases were delayed until today, 9/4.

My procedure is now to take the first 5 entries in the top 100 chart at etfdb.com - specifically the 52-week non-leveraged performance chart.  Then, I take 1 year performance and subtract 4 week performance:
(1) PSCH = 64.50 - 7.61 = +56.89 mtm
(2) ULBR = 58.50 - (-2.34) = +60.84 mtm
(3) OILB = 55.69 - 3.59 = +52.10 mtm
(4) BNO = 54.45 - 5.54 = +48.91 mtm
(5) USO = 52.75 - 3.08 = +49.67 mtm

Based on that, ULBR has the highest momentum.  But ULBR is NOT a commission free ETF (it's actually an ETN, an exchange traded note), so I can't use it.  The whole reason I'm opening up the fund to purchase from this list is Vanguard's expansion of $0/trade for 1800+ ETFs.  So Although ULBR has the highest momentum, it doesn't fit the funds "$0/trade" criteria.

PSCH is "Free" to trade, so I switched the fund's holding from Vanguard Information Technology (VGT) into Invesco S&P SmallCap Health Care ETF (PSCH).

Had the fund kept it's original criteria, it would also have switched now that VDE (Vanguard Energy) has higher momentum than VGT.

Speaking of changes in criteria, it might be worth reviewing the fund's progress over the past 2.5 years and what motivated each change.

Originally the experiment used two kinds of momentum, with assets split 50/50 between them.  According to the white paper I read, "52-week highest price" momentum added additional value to "52-week performance" momentum.  In practice, it was difficult to implement and hurt performance.  Too many funds reach their 52-week highest price at the same time, so that approach tended to get diluted when applied to Vanguard sector funds.

The experiment also started out limited to Vanguard's 11 sector funds.  Owing to my limited "index fund" thinking, I thought all investment approaches divided up the market and decided the weight to apply to each slice.  But there's no reason to limit the experiment to sector funds - any Vanguard ETF could be used, provided it had the highest momentum.

So the fund lost it's "52-week highest price" momentum, and expanded to all Vanguard ETFs.  I expected high turnover, and at first that was an accurate prediction.  That's also the reason the fund was limited to Vanguard ETFs: they cost $0/trade.  A high turnover fund paying commissions will feel an impact on performance.

Finally, last month, Vanguard announced ~1800 ETFs would be $0/trade at Vanguard.  I took advantage of this change by expanding the fund experiment's possible ETFs to anything listed on etfdb.com's top 100 list.  That list includes Vanguard ETFs - "VGT" is near the middle of the top 100 list.  But now the fund can benefit from other ETFs with even higher momentum, which will hopefully create more exposure to the momentum factor.  And hopefully, most of the time, more exposure to momentum translates to higher performance.

By a fun (fund?) co-incidence, the 2.5W fund is now 2.5 years old.  Which reminds me of another criteria that changed: originally, the "5W fund" made purchases every 5 weeks.  This ensured 35 days elapsed between purchases, while still occurring every week on the same day.  The 31+ day criteria was needed to avoid wash sales in a taxable account.  Since then I moved the fund to a retirement account, where there's no tax implication of selling at a loss in 30 days.  So the fund was able to switch to "2.5 weeks" per update.

The fund is now 100% in small cap health care, PSCH, based on the data on etfdb.com's top 100 charts.  Next update on Sept 20th.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #95 on: September 20, 2018, 08:10:52 AM »
The fund stays invested in PSCH (investco small cap healthcare).

I'm ignoring ETNs primarily because Vanguard charges a transaction fee for them, but not for most non-leveraged ETFs.  Here's the top 5, ignoring ETNs:
#2) PSCH, +59 momentum
#4) DBO, +46 momentum
#5) BNO, +45 momentum

The top Vanguard ETF, VGT, has a momentum of about +30.  Momentum for the purpose of this experiment is annual performance minus last month performance.

Overall, the fund profit is +40.3% versus the S&P 500 profit of +51.0%.  But it's actually a larger gap, since the fund sells within a year, while the benchmark is assumed to be held for over a year before being sold.  So that results in a better tax treatment for the S&P 500 benchmark.

Using the median income bracket of 22% and the equivalent long-term capital gains bracket of 15% gives:
40.3% less 22% taxes = 31.4% performance since Feb 2016
51.0% less 15% taxes = 43.3% performance since Feb 2016

Over 2.5 years, the gap widens from 9.7% before taxes to 11.9% after taxes.  If you put that in annual terms, taxes cause the fund to lag it's benchmark an additional -0.9%.

I suppose if I wanted to keep people invested in a fund like this, I'd break down the fund's performance into before the Feb 2018 changes, and after those changes:
Feb 2016 - Feb 2018, fund gained +24.2% while benchmark gained +40.1%.
Feb 2018 - Sep 2018, fund gained +16.7% while benchmark gained +10.9%.

Hopefully relying on more ETFs, and using only performance momentum will eventually propel the fund past it's benchmark, but it's not looking likely for this year.  But there's always the next update, which will be on Oct 8th.

MustacheAndaHalf

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Re: Playing with momentum
« Reply #96 on: October 08, 2018, 10:09:31 AM »
At Vanguard most ETFs are $0/trade, but I believe ETNs are not.  So I'm ignoring all ETNs on the chart of 52 week top performance chart at etfdb.

I looked at the top 10-20 ETFs on the chart, almost all of which were oil related.  But momentum is calculated by subtracting recent performance, which works in PSCH's favor owing to it's recent drop.  So PSCH retains the #1 slot on momentum:

#1) PSCH, 40.96 - (-7.26) = 40.96 + 7.26 = 48.22
#2) DBO, 56.98 - 10.65 = 46.33

Since momentum is calculated as 12 month minus 1 month performance, right now the negative recent performance helps PSCH.  Once that -7% ages a month, it will subtract from PSCH's momentum.  I think the momentum white paper I read discovered that was a useful change to simple 12 month performance, perhaps because reversion to the mean over 1 month shouldn't cause the fund to switch.

Another warning about etfdb: I've found mistakes in their data at times.  For example, if you search for "etfdb vti", that first link leads to to the page for Vanguard Total Stock Market ETF.  On etfdb.com, VTI is listed has having 1514 holdings.  Both morningstar and Vanguard claim this ETF has over 3500 holdings.  You could be fooled into thinking SCHB holds more stocks, when it holds ~1000 fewer stocks.

So with that in mind, here's the two ETFs above using morningstar's data:
#1) PSCH, 40.98 - (-7.80) = 40.98 + 7.80 = 47.78
#2) DBO, 56.98 - 9.67 = 47.31

It's a much closer comparison with those numbers, but still favors keeping PSCH.

Last month the performance gap narrowed to within 10% between the momentum experiment and the S&P 500.  Unfortunately most of that -7% or -8% for PSCH showed up recently, and the fund lost -6.7% since the last update.  So the performance gap has widened to +16.6%.

From 2/17/2016 until now, the raw performance is as follows:
S&P 500 benchmark: 1.4736x (not quite +50% profit), 1.4026x after tax
2.5W fund experiment: 1.3076 (not quite +33% profit), 1.2399x after tax

Next update on October 25.